Sukuk (Islamic bond) issuance would soon be back in the Kuwaiti financial market after the Capital Markets Authority (CMA), country’s financial regulator, issued rules to govern it this week. The practice had dropped significantly in the country because there were no specialized legislative frameworks to abide by and two defaults on Kuwaiti corporate Sukuks during the 2009-2010 financial global crises were enough to make investors wary of the imminent danger in such an environment.
The rules unveiled by CMA makes it obligatory that the Islamic bonds must be approved by both the CMA and the central bank as well as the required conditions to be met in order to make them tradable or be converted into shares among others. The rights and obligations of custodians of the Sukuk instruments were also outlined.
Bankers have often lamented about the country’s lack of legal basis for Sukuks and on Wednesday, CEO Mazin al-Nahedh of Kuwait Finance House, one of the world’s oldest and largest Islamic banks, said they were obliged to do their issues in other countries due to the lack of regulation. There is hope that the practice will soon be revived in Kuwait as the rules facilitate its sales by both government and corporate institutions. Issuance in the past has been done by corporate institutions and was most of the time in U.S. dollars rather than the Kuwaiti dinar.
The government is expected to lead the way because last month, finance minister Anas al-Saleh said there are plans to issue local-currency sovereign debt before 2016 due to the budget deficit gap. The government has planned to cut spending but it is yet to be noticed in the interim figures of this year up to August.